Microfinance… screwing people

January 10, 2010

A friend recommended an article about Microfinancing in Bosnia from Al Jazeera… things aren’t going well.

Microfinancing started in Bangladesh in the 1980’s and has been used throughout the world since then with mixed results. Until recently everything was going well in Bosnia. People started getting greedy it would appear.

The article states that, “Microfinance is almost universally associated with high interest rates, sometimes as high as 30 per cent a year, and high levels of repayment, adding up to the potential to make large profits.”

Isn’t Microfinancing about helping people out? You know, developing nation states, helping people to help themselves. I think having a pool of money others can use to start up their own business is a great idea, but it has to be policed and it has to be able to expand to support growing businesses and should not be driven through the need to make money by the lenders.

Ideally, we need a system where Microfinancing can be used without any pressure to make a revenue. Perhaps the funding system I considered in my last post could be adapted. Perhaps part of profits could be used for Microfinancing. Later, as this fund grows it could be used to purchase an equity stake in promising businesses so they can expand further thus creating more revenue for the Microfinancing but without any direct need to drive profit from this particular arm of the business, thus providing lower and more manageable interest rates and better terms to the beneficiaries.

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